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Updated: April 2, 2012 22:57 IST

Osborne raises Vodafone tax issue with Pranab

Special Correspondent
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Union Finance Minister Pranab Mukherjee with George Osborne, Chancellor of the Exchequer, U.K., during the Fifth Ministerial level India-U.K. Economic and Financial Dialogue, in New Delhi on Monday.
Photo: R.V.Moorthy
The Hindu Union Finance Minister Pranab Mukherjee with George Osborne, Chancellor of the Exchequer, U.K., during the Fifth Ministerial level India-U.K. Economic and Financial Dialogue, in New Delhi on Monday. Photo: R.V.Moorthy

Even as Finance Minister Pranab Mukherjee has been at pains to reiterate over and over again the economic rationale of his Budget proposal for retrospective amendment of the Income-tax Act relating to overseas merger and acquisition (M&A) deals involving domestic assets, the controversy over the Vodafone tax issue refuses to die down.

As could have been expected, the matter cropped up again during the bilateral meeting between the visiting Chancellor of Exchequer George Osborne and Mr. Mukherjee on Monday.

Drumming up a concerted pressure campaign on the Indian government — first through a March 26 letter by Vodafone Group CEO Vittorio Colao to Prime Minister Manmohan Singh dubbing the retrospective amendment move as “arbitrary and punitive treatment” to the U.K. telecom major and following it up with a similar missive from global trade associations — Britain raised the Rs.11,000-crore tax issue yet again at the official level.

Although the fifth Ministerial level India-UK Economic & Financial Dialogue (EFD) largely centred on bilateral macro-economic issues — as is clear from the joint statement released later — Indian government officials confirmed that the Vodafone tax issue “prominently” figured in the discussions that the two leaders had during the nearly half-hour one-to-one meeting.

“Vodafone issue came up for discussion at the bilateral meeting between the two [Mr. Osborne and Mr. Mukherjee]. Osborne said U.K. investors were anxious following India's proposal to amend the tax law,” an official said.

While Mr. Osborne stressed the fact that the Supreme Court's verdict in the case was in favour of Vodafone and that any move to bring the telecom major into the tax net through retrospective amendment would tarnish India's image as an investment destination, Mr. Mukherjee sought to explain the legal position why the back-dated amendment was necessary so as to avert a fiscal crisis and the fact that India was neither a no tax country nor a tax haven.

Even earlier, during post-Budget interactions, Mr. Mukherjee had pointed out time and again that retrospective amendment of tax laws — though not desirable — was aimed at plugging loopholes in legislation and made clear the legislative intent.

Besides, officials have also pointed out that for Vodafone to pose that it was unaware of the tax demand was wrong because Indian authorities had raised a demand much before the completion of the deal. Moreover, neither the U.K. nor other countries such as Australia or China are alien to retrospective amendment of tax laws. There are media reports of Britain claiming 100 million pound sterling from Barclays recently through retrospective tax law amendment.

The joint statement, however, does not reflect any differences between the two countries. Speaking to the media after the ministerial meeting, Mr. Mukherjee said: “We had a very fruitful and effective discussion”. Echoing similar sentiments, Mr. Osborne also noted that the two countries are keen to enhance their two-way economic partnership.

“What we want to see happen is more investment, more trade, more Indian businesses doing businesses in Britain, more British businesses doing business in India,” he said.

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Governments all over are tightening loopholes created by lobbying by firms that advocate liberalisation then promote FDI with concessions and once in fail to pay taxes that they would have paid under normal business practices. So we have developed nations such as India opening up to FDI only to find that people at large are the losers. Big businesses that preach corporate governance etc fail to observe the responsibility. Evasion of taxes through offshore tax havens, claiming tax credits to bolster the profit bottom-line are some of the tricks that go out to stymie the growth. Politicians with their ever increasing tendency to borrow more and more to run governments welcome FDI. If India does not watch out we will soon have many more East India companies! Why can’t these companies run businesses in an ethical manner observing rule of law of the land they operate? It’s time for governments to examine the effects of so called FDI before throwing open the doors further.

from:  BJRRao
Posted on: Apr 3, 2012 at 14:09 IST

The stand of the finance minister supporting retrospective amendment
of the Income Tax Act relating to Vodaphone case to tax alleged
transfer of Controlling interest on transfer of shares of a company is
wholly untenable.In the three High Court cases on the basis of which
Vodaphone succeeded in the Supreme Court in those three cases the
Revenue always pleaded that the controlling interest was not an
independent asset and not transferable and the share price received
could not be bifurcated between the share and alleged control. This
was accepted by the Courts, including now the Supreme Court. Hence on
the basis of the unamended law it was never the intention of the
Parliament or the Courts to look at control seperately. Hence the plea
of Mr. Mukherji that the amendment is to bring out legislative intent
is absolutely false.The Revenue never relied on those Indian and U.K.
decisions where the Courts and authors on Company Law looked t control
as seperate from shares.

from:  Ranjeet Murarka
Posted on: Apr 3, 2012 at 06:46 IST

Governments all over are tightening the loopholes created by lobbying by firms that advocate liberalisation then promote FDI with concessions and once in fail to pay taxes that they would have paid under normal business practices. So we have developed nations such as India opening up to FDI only to find that people at large are the losers. Big businesses that preach corporate governance etc fail to observe the responsibility. Evasion of taxes through offshore tax havens, claiming tax credits to bolster the profit bottom-line are some of the tricks that go out to stymie the growth of poor nations. Politicians with their ever increasing tendency to borrow more and more to run governments welcome FDI. If India does not watch out we will soon have many more East India companies! Why can’t these companies run businesses in an ethical manner observing rule of law of the land they operate? It’s time for governments to examine the effects of so called FDI before throwing open the doors further

from:  BJR Rao
Posted on: Apr 3, 2012 at 00:15 IST

Retrospective amendments of any law (not just tax law) fly in the face of rule-of-law, and as such, are unconstitutional. Just because China/UK/Australia have them does not mean we should too. Once a bill becomes law, it should only apply from that day going forward.

from:  Pavan
Posted on: Apr 2, 2012 at 23:29 IST

The foreign investments are nothing but developed countries buying developing countries with paper money. No money in the world is backed by Gold or other substantial assets. In my opinion whatever the govt did is a good act. India is not a tax haven and MNC and foreign investors should know that. If they are not willing to invest in India it means they are looking to cut corners. No where in the world these foreign investors will get a growth of 5% or more. If they want more profit they need to pay taxes.

from:  kumar
Posted on: Apr 2, 2012 at 22:40 IST

Tax evation is one thing and tax avoidance is something else. But when legal tax avoidance is done through a circutous way it should be curbed A middle class citizen is taxed heavily as capital gains tax but these offshore compaies they do not pay a paise what would otherwise have come into Govt. coffers. It is very sad to note that such a thing was allowed without the supervision of high officials of CBDT and a Finance Minister. Vodofone does business here but is not taxed. Suppose two individuals go to a tax haven they register themselves as two companies and one sells a costly asset to another and the capital gains is avoided. Is it permitted? The answer is yes as per the law.

from:  ram
Posted on: Apr 2, 2012 at 21:27 IST

Applying any law with "retrospective effect" is neither logical nor rational. It can
apply only for the future. Going ahead as proposed by government will jeopardize
and negate all efforts made to provide "investor friendly" atmosphere in the country.
Moreover, it is unlikely to pass the judicial scrutiny as well, if challenged. My own gut
feeling is that ultimately the authorities will back out from the idea,once the affected
firm(s) come with "bouquets", as if they are bowing to the popular sentiments from
captains of industries from across the world !

from:  KS Raghunathan
Posted on: Apr 2, 2012 at 19:26 IST
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